NEW YORK – While the original intent of Medicare Advantage plans was to help save money, a new report from the Commonwealth Fund indicates the cost of MA plans may jump 12.4 percent per enrollee in 2008 compared to what the same enrollee would have cost in the traditional Medicare fee-for-service program.
“The Continuing Cost of Privatization: Extra Payments to Medicare Advantage Plans in 2008” estimates that extra payments to MA plans will amount to $986 over fee-for-service costs for each of about 8.7 million Medicare beneficiaries enrolled in Medicare Advantage plans, for a total of more than $8.5 billion in 2008.
That’s an increase from $3.9 billion in extra payments, or $795 per MA enrollee, in 2004. Extra
payments between 2004 and 2008 will total nearly $33 billion.
“This doesn’t make any sense right on the face of things,” said Rick Kellerman, board chairman for the American Academy of Family Physicians. He describes the policy as “perverse.”
Even if the payment reductions to MA plans mandated by the Medicare Improvements for Patients and Providers Act of 2008 – scheduled to take effect beginning in 2010 – had been in place in 2008, MA plans still would have been paid 10.6 percent more than expected fee-for-service costs.
"Medicare Advantage was intended to save the program money through the use of private plans," said Brian Biles, professor of health policy at George Washington University and one of the report’s authors. “However, extra payments to these plans combined with rapidly increasing enrollment has resulted in $33 billion in additional spending over the past five years.”
“The government is actively trying to move people into MA plans, but this is a policy that really should be in question,” said Kellerman.
According to officials, the bulk of these extra payments were mandated by the Medicare Modernization Act of 2003, which was intended to expand the role of private plans in Medicare to reduce growth in Medicare spending. Since 2004, MA plan enrollment has increased from 4.8 million to 8.7 million enrollees.
“The legislation passed this year only partially addresses the overpayment problem in Medicare Advantage, and private plans still substantially raise the cost of serving Medicare beneficiaries,” said Commonwealth Fund President Karen Davis. “Policymakers should carefully examine whether extra payments to Medicare Advantage plans are the best use of dollars for the beneficiaries the program is designed to serve.”
Extra payments to MA enrollees vary greatly from state to state. Nevada is the lowest, at $228 more per beneficiary than traditional Medicare beneficiaries. The highest is $2,265 in Hawaii for the very same plan.
The report suggests that extra payments to private plans could be used for other purposes, such as offsetting the costs of Medicare policy improvements. These options include slowing the increase in the Part B premium that Medicare beneficiaries pay, increasing eligibility for low-income subsidies in Medicare or improving benefits and financial security for all beneficiaries.